California Senate Bill 1079, which went into effect on January 1, 2021, modifies the foreclosure auction process to provide a level playing field for home ownership. The bill enacts a procedure by which certain eligible bidders can purchase the subject residential property if they can match or exceed the last and highest bid made at the trustee’s sale.
Eligible bidders must submit to the trustee:
• A nonbinding written notice of intent to place a bid within 15 days after the trustee’s sale; and
• The total bid, in cash, to the trustee within 45 days of the trustee’s sale.
Senate Bill 1079 defines eligible bidders as:
• An eligible tenant buyer.
• A prospective owner-occupant.
• A nonprofit association, nonprofit corporation, or cooperative corporation in which an eligible tenant buyer or a prospective owner-occupant is a voting member or director.
• An eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable rental housing.
• A limited partnership in which the managing general partner is an eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable housing.
• A limited liability company in which the managing member is an eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable rental housing.
• A community land trust, as defined in clause (ii) of subparagraph (C) of paragraph (11) of subdivision (a) of Section 402.1 of the Revenue and Taxation Code.
• A limited-equity housing cooperative as defined in Section 817.
• The state, the Regents of the University of California, a county, city, district, public authority, or public agency, and any other political subdivision or public corporation in the state.
ZBS Law 2020-2021 Foreclosure Updates
AB 3088 – Loss Mitigation & Nonjudicial Foreclosure (Effective Now)
- Amended Civil Code § 2924.15 expands California Homeowner Bill of Rights (“HOBR”) protections to borrowers with qualifying residential rental properties occupied by tenants who have a bona fide lease and who are unable to pay rent due to a reduction in income resulting from COVID-19.
- New Civil Code §§ 3273.1 – 3273.16 establishes guidelines for how servicers must handle forbearance requests. Specifically, Section 3273.10 requires a servicer to send a written notice with a detailed explanation to any borrower whose forbearance request is denied if the borrower’s default was the result of a financial hardship caused by COVID-19. Further, if a qualified forbearance request is denied and a nonjudicial foreclosure is initiated, the HOBR Declaration recorded with the Notice of Default must include a copy of the written notice, along with a statement as to whether a forbearance was provided after the initial denial. These new provisions apply to senior and junior deeds of trust, and large and small loan servicers.
SB 1079 – Pre- & Post-Sale Nonjudicial Foreclosure (Effective 1/1/2020)
- Amended Civil Code § 2924f requires that the Notice of Sale include additional language—a “Notice to Tenant”—that outlines a new post-auction bidding process, by which a tenant may purchase the property after the foreclosure auction is held.
- New Civil Code § 2924m creates a post-auction bidding process by which any of 3 newly entitled parties may purchase the property, despite the results of the public auction.
- Prospective Owner-Occupant (cannot be the borrower).
- Eligible Tenant Buyer (cannot be the borrower).
- Eligible Bidder – Certain affordable housing nonprofit/co-op entities, California state/local governments or agencies, public corporations, political subdivisions, or the Regents of the University of California.
Post-Auction Bidding Process:
- If the winning auction bidder is also a Prospective Owner Occupant (who presents the necessary affidavit at the time of sale), the Trustee’s Deed Upon Sale (“TDUS”) goes to the winning auction bidder, without any post-auction process required.
- Otherwise, the entitled parties have until the 15th calendar day after the auction to submit a nonbinding written notice of intent to bid (“NOI”) or a bid.
- If the trustee receives no NOI by the 15th day, the Trustee’s Deed Upon Sale (“TDUS”) goes to the winning auction bidder.
- If the trustee receives one or more NOI (or a bid) from an Entitled Party within the 15-day window, the trustee must wait until the 45th calendar day after the auction to permit all parties that submitted an NOI to bid.
- If the trustee receives no bids by 5:00 p.m. on the 45th calendar day after the auction, the TDUS goes to the winning auction bidder.
- If, within the 45 days after the auction, the trustee receives a bid from a representative of all of the Eligible Tenant Buyers that is equal to the amount paid by the winning auction bidder, the TDUS goes to the Eligible Tenant Buyers.
- If the trustee receives one or more bids by 5:00 p.m. on the 45th calendar day after the auction, the TDUS goes to the highest post-auction bidder and the trustee refunds all other bidders.
The California legislature passed SB 1079 which is effective 1/1/2021. This law until January 1, 2026, requires the notice of trustee’s sale to contain a specified notice to a tenant regarding the tenant’s potential right to purchase a property containing from 1 to 4 single-family residences. The Trustee is also required to maintain an internet website and a telephone number to provide specified information on the properties that is free of charge and available 24 hours a day, 7 days a week.
- A tenant, owner occupant or agency may purchase 1-4 unit residential property pursuant to a post-sale process further described below.
- The Notice of Trustee’s Sale must describe the new post-sale process.
- The Trustee or Trustee’s agent website must contain trustee’s sale information.
- Relocation assistance and just cause eviction may be required the case of a post-foreclosure eviction.
- The civil fine for failure to maintain post-foreclosure properties has been increased to $2,000 per day for the first 30 days, and up to a maximum of $5,000 per day thereafter, subject to the discretion of the governmental entity
SB 1079 Post-sale Process
- An “eligible tenant buyer” may purchase the property by matching the high bid placed at the trustee’s sale auction.
- An “eligible bidder” may (a) purchase the property by exceeding the highest bid at the trustee’s sale; (b) must send non-binding written notice of intent to place a bid so trustee receives it no more than 15 days after the trustee’s sale; (c) must submit a bid so the trustee receives it no more than 45 days after the trustee’s sale; (d) As of 5 p.m. on the 45th day after the trustee’s sale, if one or more eligible bidders has submitted a bid, the eligible bidder that submitted the highest bid shall be deemed the last and highest bidder and the Trustee is required to return any losing bids to the eligible bidders.
CA Judicial Council
On August 13, 2020, California’s Judicial Council established an end date of September 1, 2020 to the Emergency Rules limiting eviction and judicial foreclosure filings in the state. Emergency Rule 1 prohibits California courts from issuing a summons, entry of default or default judgment in any eviction action filed, unless the action is necessary to preserve health and safety. Rule 1 also pushed out trial dates for at-issue eviction actions. Regarding judicial foreclosures, the Emergency Rule 2 stayed pending actions, and indicated that “the court may take no action and issue no decisions or judgments unless the court finds that action is required to further the public health and safety. The August amendments remove the existing eviction and judicial foreclosure restrictions after midnight on September 1, 2020.
California Legislative Action re Evictions:
On August 31, 2020, the California Legislature enacted and the Governor signed Assembly Bill 3088.
(1) New law includes targeted protections for tenants to shield them from evictions due to COVID-19-related back rent through February 1, 2021. (2) No tenant can be evicted before February 1, 2021 as a result of rent owed due to a COVID-19 related hardship accrued between March 4 – August 31, 2020, if the tenant provides a specified declaration of hardship. (3) For a COVID-19 related hardship that accrues between September 1, 2020 – January 31, 2021, tenants must also pay at least 25 percent of the rent due to avoid eviction. (4) Tenants are still responsible for paying unpaid amounts to landlords, but those unpaid amounts cannot be the basis for an eviction. (5) Landlords may begin to recover this debt on March 1, 2021, and small claims court jurisdiction is temporarily expanded to allow landlords to recover these amounts. (6) Landlords who do not follow the court evictions process will face increased penalties under the Act. (7) Extending the notice period for nonpayment of rent from 3 to 15 days to provide tenant additional time to respond to landlord’s notice to pay rent or quit. (8) Requiring landlords to provide hardship declaration forms in a different language if rental agreement was negotiated in a different language. (9) Providing tenants a backstop if they have a good reason for failing to return the hardship declaration within 15 days. (10) Requiring landlords to provide tenants a notice detailing their rights under the Act. (11) Limiting public disclosure of eviction cases involving nonpayment of rent between March 4, 2020 – January 31, 2021. (12) Protecting tenants against being evicted for “just cause” if the landlord is shown to be really evicting the tenant for COVID-19-related nonpayment of rent. (13) Extends pre-foreclosure and loss mitigation application protections in the Homeowner Bill of Rights to small landlords of non-owner occupied property, which previously only applied to owner occupied property. (14) Requires servicers to provide notices regarding incomplete forbearance applications and allow 21 days for borrowers to cure deficiencies. (15) Requires servicers to include additional content in Civil Code section 2923.5 Declaration when a forbearance application made between September 1, 2020 and April 1, 2021 is denied. (16) Provides the borrower who is harmed by a material violation with a cause of action for injunctive relief or damages, potential attorney fee and cost award.
Judicial foreclosure proceedings are stayed. On June 10, 2020, the Judicial Council (“Council”) was scheduled to vote on a proposal that would have allowed judicial foreclosure and eviction proceedings to resume in August. However, on June 10, 2020, the Council instead delayed making a decision.